While the European Commission committed itself to a reflection on the future of the VAT on financial services, the Economic and Financial Affairs Council didn’t reach agreement on the quick fixes for the current regime.
The commission had proposed four quick fixes to the current VAT system while the future definitive regime is being negotiated. “In principle, all those fixes are acceptable to all delegations in substance,” Bulgarian Finance Minister Vladislav Goranov told his peers during a public session of the Economic and Financial Affairs Council on June 22.
The first fix is for simplified and uniform treatment for call-off stock arrangements, in which a vendor transfers stock to a warehouse at the disposal of a known acquirer in another member state. The second quick fix provides that in order to benefit from a VAT exemption for the intra-EU supply of goods, the identification number of the customer would become an additional condition. To enhance legal certainty, the third fix involves uniform criteria linked to the VAT treatment of chain transactions. Finally, a common framework is proposed for the documentary evidence required to claim a VAT exemption for intra-EU supplies. All these adjustments are to apply from January 1, 2020.
But France asked for a fifth quick fix to be added, after three judgments by the Court of Justice of the European Union on September 21, 2017. In those judgments, the CJEU introduced the notion of “general interest” to exclude groups whose members operate an economic activity in the banking, insurance, or finance sectors from the VAT exemption permitted under Directive 2006/112.
In the compromise proposal, the fifth quick fix states that each member state “may exempt the supply of services by independent groups of persons, who are carrying on an activity which is exempt from VAT or in relation to which they are not taxable persons, for the purpose of rendering their members the services directly necessary for the exercise of that activity, where those groups merely claim for their members exact reimbursement of their share of the joint expenses, provided that such exemption is not likely to cause distortion of competition.”
EU Tax Commissioner Pierre Moscovici told the finance ministers, “The commission is opposed to this fifth quick fix because we believe that such an optional exemption would harm the functioning of the internal market.” He said he also opposes it because he believes that by limiting the application of this exemption inside one member state, it would harm the freedom of establishment. Moscovici added that the fifth quick fix has nothing to do with the initial proposal of the commission. “Its inclusion in the text impinges on the right of legislative initiative of the commission, so it means it can only be done with our agreement,” he said.
Philippe Léglise-Costa, France’s permanent representative to the EU, said he did not share the commission’s conclusion that the quick fix would create distortions in the internal market. He said the text as drafted would avoid limiting the EU’s freedoms. Léglise-Costa said the fifth quick fix was “in the spirit” of the whole proposal and would bring a punctual solution to something the CJEU ruled against last year. “The inclusion of this provision is important to respond to the concerns raised by economic operators,” said Giovanni Tria, Italian minister of economy and finance.
On April 18 the European Banking Federation wrote to Stephen Quest, the commission’s director general of taxation and customs union, to ask the institution to present a proposed change to the VAT directive, following the CJEU decisions.
Many European financial institutions have organized the provision of services, including the outsourcing of staff, using this independent group of persons regime — which is often seen as a way of legally circumventing VAT liability.
After the ECOFIN meeting, Insurance Europe called on the commission to present a thorough review of the VAT directive to modernize VAT rules in the EU, particularly in the field of financial services. It stated that “recent rulings of the [CJEU] have shown that there is a need to adapt the VAT Directive to current market realities.” Therefore, Insurance Europe said that a review should seek to create legal certainty by implementing the jurisprudence of the CJEU while also attempting to overcome CJEU interpretations that may be too restrictive and may lead to significant business reorganization (for example, regarding the availability of costsharing groups in the financial sector).
The Netherlands and Austria supported Italy and France’s position. Austrian Minister of Finance Hartwig Löger, Spanish Economy Minister Nadia Calviño, and Swedish Finance Minister Magdalena Andersson all said that member states should make progress on the four initial quick fixes, with Andersson adding that it should be done to show that “there are a lot of grown-ups in the room.” Löger asked the commission to show a clear commitment to present an initiative on the fifth fix, while Calvino said member states should “launch a debate on the VAT regime in the financial sector.” Kim Jørgensen, Denmark’s permanent representative to the EU, said he could not support the fifth quick fix because of the strong opposition of the Danish Parliament, which believes that the “potential revenue loss is really significant.”
“We recognize that the [CJEU] rulings raise a number of questions on the VAT on financial services,” Moscovici said. “There should be no ambiguity on the fact that there is a real issue that needs a real answer. But that answer can’t be given through the fifth quick fix.”
France said it would be ready to agree to the four first quick fixes only if an agreement on the fifth could be found in the next few weeks, but Moscovici said that would not be possible. France and Italy then vetoed the dossier.
At the ECOFIN meeting, member states reached agreement on measures to strengthen the administrative cooperation in the field of VAT and on the directive making permanent the 15 percent minimum standard VAT rate currently in force.
By Elodie LAMER
Cette information est extraite de notre service d'actualité taxnotes
